Game Of Cards Companies Deal Out Incentives, Hope To See Customers Raise The Amount They Charge.

April 27, 1991|Chicago Tribune

NEW YORK -- Frank X. McNamara didn`t have enough cash to pay for his guests at a Manhattan restaurant one winter evening in 1950. Determined never to be stuck in that embarrassing position again, McNamara persuaded 27 New York restaurants to sign up for his ``diners` club,`` allowing members to charge their meals at those establishments.

It was the catalyst for a charge card revolution. Today, 700 million credit cards are used by more than 100 million U.S. households. The cards have altered the way Americans pay for goods and services and -- for better or worse -- the way they look at debt.

The McNamaras of the `90s, already comfortable with charging tape decks and suits, hotel rooms, meals and plane tickets, are now moving to using plastic for fast food, parking-lot fees, pay-phone calls, movies, health-care needs and many other goods and services where cash was once king.

There is room for expansion. Despite the explosive growth of consumer credit in the past decade, nearly 85 percent of the $3.66 trillion in consumer payments in 1990 was in cash or checks, according to the Nilson Report of Los Angeles.

And consumers are also using more debit cards, which are evolving from automated teller machine cards to also providing instant access to your checking account at supermarkets, stores and restaurants.

And, after more than a decade of sky-high credit card interest rates, price competition may force those rates down -- though banks and other issuers will fight that trend as long as possible. It is far more profitable for them to keep the rates high and instead reduce the annual fee or offer discounts, warranties and price protection to persuade customers to keep using the card.

Because so many consumers value the convenience of charge cards and are fairly apathetic about the interest rate, the average general-purpose card rate is 18.88 percent and has not dropped below 18 percent in the past five years, said Robert Heady, publisher of Bank Rate Monitor in North Palm Beach.

Credit card issuers aggressively marketed their Visa, MasterCard, American Express, Optima and Discover cards throughout the `80s to attract cardholders. But the battle in the `90s will focus on trying to retain cardholders and trying to get them to use their cards more often -- at the expense of a competing card. Incentives to do so include Citibank`s recently announced ``price protection plan,`` in which the bank promises to make up the difference if a consumer buys an item with the card, then finds the identical item elsewhere for less.

Everyone is trying to ``add value`` to their cards to make them more attractive, said Alex W. ``Pete`` Hart, president and chief executive of MasterCard. ``Most people are winnowing cards from their wallets. We see continuing use of enhancements.``